Wed, May 27, 8:15 AM
- Top global iron ore miners BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE) are right to move forward with expansions into an oversupplied market since supporting prices through production cuts would hurt efficiency and prove difficult to coordinate, Goldman Sachs says.
- “First, production cuts would go against the prevailing trend of improving efficiency,” Goldman says. “Second, the required coordination among dominant producers with different incentives would be more difficult to achieve among three companies; successful cartels in oil and potash have featured only one or two dominant producers.”
- Glencore (OTCPK:GLCNF, OTCPK:GLNCY) CEO Ivan Glasenberg, among others, has said that oversupplying markets regardless of demand was damaging the industry’s credibility.
- Goldman expects the iron ore "war of attrition" will continue while prices gradually decline toward its $40/metric ton forecast by 2017.
Fri, May 22, 12:34 PM
- Brazil stocks are sharply lower after Eletrobras (EBR -4.5%), the country’s largest utility by revenue, was cut to junk by Moody’s.
- While EBR showed “some financial improvement” in its Q1 earnings, its credit metrics remain too weak to remain at investment grade, Moody’s said, also citing an investigation on alleged bribes involving the former head of a subsidiary.
- Meanwhile, Pres. Rousseff is trying to salvage her presidency as things go from bad to worse amid the Petrobras (PBR -3.8%) corruption scandal, with a new poll finding that 63% of Brazilians favor impeachment proceedings.
- Brazilian opposition lawmakers are considering impeachment, either as an accessory to the corruption or for crimes of “irresponsibility” with finances.
- Also: PBR.A -3.8%, EBR.B -6.6%, VALE -0.2%, ELP -1.2%, CIG -3.3%, CPL -2%, SBS -4.7%, BSBR -2.7%, BBD -2.6%, ITUB -2.3%.
- ETFs: EWZ, BRF, BRZU, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ
Thu, May 21, 12:58 PM
- China's commitment to invest in Brazil's iron ore sector puts the big Australian exporters on notice, as Vale (VALE +1.6%) is forecast to increase production from current levels of 330M metric tons of iron ore to 450M by 2018 - greater than the combined output of BHP Billiton (BHP +1.2%) and Rio Tinto (RIO +0.9%).
- China's new A$5B revolving line of credit for Vale means the company now can fund a $16B expansion of its iron ore mines; the deal also saw Chinese invest in several of Vale's giant iron ore carriers, ships that can carry vastly more resources and reduce transport costs by ~25%.
- Vale last year accounted for 18% of the supply to the Chinese market vs. nearly 60% by Australian producers.
Tue, May 19, 5:21 PM
- China confirms it is extending billions of dollars in loans and investment to Brazil, including $7B in financing for Petrobras (NYSE:PBR), as part of a major foray into Brazil's energy, infrastructure and mining industries.
- The countries also finalized a deal to sell 22 Embraer (NYSE:ERJ) commercial jets to China’s Tianjin Airlines, while Vale (NYSE:VALE) announced extended cooperation with China on maritime transport of iron ore.
- The news unveiled during Chinese premier Li Keqiang's official visit is a ~$50B boon for Brazil as it endures a fifth straight year of low growth.
- ETFs: EWZ, BRF, BRZU, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ
Thu, May 14, 9:58 AM
- BHP Billiton (BHP +1%) is out in defense of its strategy of expanding iron ore output into an oversupplied market, saying the company’s approach is rational even as iron ore prices have slumped ~40% in the past 12 months.
- "This is a market which is highly competitive, it's cyclical and so our performance will be dependent on being the most efficient supplier and it shouldn’t be dependent on supply restraint,” says iron ore marketing VP Alan Chirgwin.
- Global iron ore supply could rise by 100M-110M metric tons this year while demand is only estimated to grow by 30M-40M metric tons, Chirgwin says, adding that "supply growth over the last 12 months has outpaced demand growth and that will keep pressure on prices next year."
- Also: RIO +0.9%, VALE +0.5%.
Mon, May 11, 11:58 AM
- The recent rally in iron ore is only temporary, and iron ore’s long-term fundamental weaknesses of oversupply and a lack of demand is not likely to change, Goldman Sachs says.
- No major producer has revised its long-term production target downwards, Goldman says, also believing that the deferral of capex at BHP Billiton (BHP +0.8%) reflects further gains in efficiency rather than a change in strategy; also, the firm thinks Atlas Iron (OTCPK:AGODY) is the first - and maybe not the last - Tier 2 producer to reverse a mine closure.
- Goldman expects iron ore to average $52/metric ton this year and fall to $44 in 2016 and $40 in 2017.
- Iron ore producers are higher after the People’s Bank of China again cut interest rates over the weekend: RIO +2.3%, VALE +1.6%.
Fri, May 1, 5:49 PM
- Wolfe Research analyst Gordon Johnson says he remains negative on Cliffs Natural Resources (NYSE:CLF), underpinned by his views on structural iron ore excesses, but at least he came away from a meeting with CEO Lourenco Goncalves with "a better appreciation for the bull case."
- Johnson says the CEO admitted the opportunity to sell iron ore pellets to U.S. mini-mills is small now at ~500K tons over the next 12 months, but CLF sees big potential for what would be an entirely new market for the company; CLF pegs the longer-term potential at 5M-10M tons, and says its existing capacity is sufficient to meet an incremental 500K tons.
- Both the analyst and the company suspect CLF's stock price rise yesterday was a result of misunderstanding Vale's (NYSE:VALE) comments from its earnings conference call; Vale is not likely to consider a cut to its planned ramp to 450M metric tons/year until iron ore prices move statically below $41/ton.
Thu, Apr. 30, 4:45 PM
- Vale (NYSE:VALE) says it is delaying the timeline of a possible IPO of its base metals division after an expected rebound in nickel prices failed to materialize.
- Vale had said in December it was considering selling 30%-40% of the division around August, but CEO Murilo Ferreira now says the new goal is to be ready to present a recommendation to Vale’s board by the end of this year for possible action in 2016.
- Vale execs had been expecting nickel prices to rise to ~$21K/metric ton but the company instead sold its nickel for an average $14,279 in Q1, citing a slowdown in Chinese housing construction and bearish sentiment regarding Chinese economic growth.
- Earlier: Vale posts third straight quarterly loss but may cut iron ore output
Thu, Apr. 30, 1:17 PM
- Vale (VALE -0.9%) is lower after posting a Q1 loss - its third straight quarterly loss, and a wider loss than in Q3 and Q4 - under pressure from falling iron ore prices.
- As well as weaker iron ore prices, Vale says the depreciation of the Brazilian real against the dollar had cost it $3B in the quarter.
- But shares are well off earlier lows after Vale's Head of Ferrous Peter Poppinga told investors during a conference call that the company may cut its iron ore production forecast by up to 30M metric tons over the next two years.
- Poppinga says Vale could replace some old higher-cost iron ore production as new capacity comes on stream: "If the market demands, we are prepared to reduce production from the south and southeast system," he said, referring to the company's Minas Gerais mines.
- The exec said Vale's iron ore production forecast for 2015 would remain at 340M metric tones, but he did not specify whether adjustments could be made to the forecast for next year and beyond.
Thu, Apr. 30, 9:37 AM
Wed, Apr. 29, 11:11 PM
- The recent rally in iron ore prices is built on shaky foundations, as today's 4.6% drop emphasizes, writes Heard on the Street's Liam Denning.
- Optimism had sprung in part from a 5% jump in Chinese crude steel production in the first 10 days of April, but Denning says structural headwinds - China’s desire to pivot away from fixed-asset investment and its need to deal with bad debt - remain.
- Bulls also have cited BHP Billiton's (NYSE:BHP) plans to scale back iron ore capacity expansion plans in Australia, but Caroline Bain at Capital Economics says a cut to potential supply of just 20M metric tons does not amount to much; also, BHP and Rio Tinto (NYSE:RIO) are expected to raise output heading into their June fiscal year-ends.
- Also worth noting is that while Cliffs Natural Resources (NYSE:CLF) reported positive Q1 earnings, free cash flow was negative despite an 85% cut in capital spending; in its earnings conference call, CLF spoke almost wistfully of the need for BHP, Rio and Vale (NYSE:VALE) to curb expansion to rebalance the market.
Wed, Apr. 29, 7:52 AM
- Vale (NYSE:VALE) is in talks with Chinese shipbuilders and leasing companies to build ~50 giant Valemax bulk carriers that would move iron ore from Brazil to China, WSJ reports.
- Brokers in Singapore say the potential order is aggressive given the soft markets in both iron ore and bulk shipping in general; the Baltic Dry Index has been hovering near 30-year lows since the beginning of the year on weaker imports of coal and iron ore from China.
- If confirmed, the order would be the largest in history for such ships.
- VALE -3.1% premarket.
Sun, Apr. 26, 11:59 AM
Fri, Apr. 24, 5:37 PM
Fri, Apr. 24, 12:29 PM
- Vale (VALE +9.1%) continues to surge, headed for its biggest weekly gain in 16 years and gaining nearly 50% since Wednesday's announcement that it produced record-high levels of iron ore, nickel and other commodities during Q1.
- Also on Wednesday, BHP Billiton (BHP +3.4%) said it was curbing expansion plans and supplies from higher-cost mines dropped, easing concerns over a global glut and sparking iron ore biggest one-day price jump since 2012.
- "Vale is reacting to the rebound in iron ore prices,” said an equity analyst at CM Capital in Sao Paulo. “Most of Vale’s costs are fixed, so whenever there’s an increase in prices, there’s a direct impact on earnings.”
- Iron ore prices jumped 5.5% overnight to $57.81/dry ton and have rallied 23% since bottoming out at $47.08 on April 2.
- Also: RIO +1.6%, CLF +3.7%.
Wed, Apr. 22, 10:43 AM
- Vale (VALE +7.4%) says it produced 74.5M metric tons of iron ore during Q1, up 4.9% Y/Y and a company record for the period, as it increased output despite weak prices.
- Vale's total was aided by the N4WS mine in the Carajás complex in the Brazilian Amazon which began operating in December and contributed to an 18% rise in Carajás production during the quarter.
- Output of iron ore pellets, which sells at higher prices, rose 15% to 11.4M tons.
- Vale also produced a Q1 record 69.2K metric tons of nickel, up 2.5% Y/Y, while copper production surged 21% to a record 107.2K tons, adding by the ramp-up of the Salobo mine in northern Brazil; coal output fell 5.1% to 1.7M metric tons.
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